The Morning Update

The USD holds steady, oil prices weakened, equity markets are mixed, and US yields rise ahead of the Fed Chair's testimony. Currency markets are sidelined as markets settle the UK and French elections, while investors shift their focus to the Fed's semi-annual testimony in front of Congress. US futures rose slightly after the S&P 500 and the Nasdaq closed at fresh records, while Asian and UK equity markets are up, and European equities are down. Investors will be following the two days of the Fed Chair's testimony in front of Congress for hints about how soon the Fed will be in a position to cut interest rates. Capital markets are pricing in the prospect of two interest rate cuts in 2024, with a 70% chance of the first cut at the September meeting. Elsewhere, oil prices slip as concerns over hurricane Beryl ease, and Bitcoin bounces off July, rallying +2% back to $57,600. In focus today, with the absence of US & CAD high-tier data releases, investors will be focused on Fed Chair Powell's testimony, and speeches from Fed's Bowman and Barr will help provide intraday direction currency markets today.

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In other news. Australia accuses China-backed hackers of breaching government networks. Biden launches new offensive to hold on to the presidential nomination. France's leftwing parties jostle to lead a new government. India's Modi visits Putin to strengthen ties as a hedge against China. Singapore port congestion threatens to gum up global trade. UK Finance Minister Reeves warns that the UK public finances are in the worst state since the Second World War. The Fed is considering a rule tweak that could save the biggest US banks billions in capital. US House Democrats to huddle behind closed doors amid debate over President Biden's path forward.

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In currency markets. The USD edges higher ahead of Powell's testimony, the Euro holds steady after the French vote, and the pound holds near one-month highs following the Labour Party's win. CNY and Asian currencies are flat on average against the USD. Trading currencies are under pressure, with NOK weakening 0.35%, MXN, SEK, NZD, ZAR & JPY down 0.15%, and AUD & CHF flat against the USD.

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In commodity markets. Oil prices weaken by 0.5%, Natural Gas & Copper prices are up 0.1%, Gold prices firmed by 0.3%, Silver prices rallied by 1.45%, Wheat prices are flat, and Soybean prices slipped by 0.2%.

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CAD holds near July highs as investors remain sidelined ahead of the US Fed Chair's two days of testimony. Domestically, the lack of Canadian economic data releases leaves the loonie vulnerable to the US economic calendar with the Fed testimony and US inflation report to drive direction this week. Speculation continues to grow that the BoC will cut domestic interest rates at their July 24th meeting, which is expected to add selling pressure on the loonie ahead of the meeting.

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EURCAD is flat, holding near four-week highs as political uncertainty still lingers in France and investors remain cautious ahead of the July 24th BoC meeting.

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EUR continues to flat-line above 1.0800 heading into Fed Chair Powell's testimony. The euro is finding support from easing political concerns in France, with markets now sidelined ahead of the Fed Chair's testimony as investors look for direction on the US policy outlook. In the Semi-Annual Monetary Policy Report published on Friday, the Fed noted that there was further progress on inflation in 2024 but maintained that policymakers still need greater confidence before cutting interest rates. Alongside the Fed chair testimony, markets will also be looking for comments following the closed-door democratic meeting amid debate over Biden's path forward.

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GBPEUR continues to edge higher, testing a fresh three-week high with the Labour majority win supporting the pound. Meanwhile, the Euro remains under pressure as the French government remains deadlocked in an attempt to find a new prime minister.

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GBP holds at one-month highs heading into two days of Fed's testimony. The pound is little changed in early trading, holding near a four-week high with investors appearing comfortable with Labour's clear mandate to rule in the UK. The pound remains one of the best-performing currencies of 2024, which is largely due to the Bank of England's stance of keeping domestic interest rates higher for longer. This week sees limited UK economic releases, so the pound will be reliant on the US data to drive direction.

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